Shares in furniture retailer ScS Upholstery were suspended on Monday as the troubled company tried to thrash out a rescue deal.
The company, which has several stores in the West Midlands, and manufactures sofas in the region, had been trying to find additional working capital after a sales slump.
ScS said it had received an approach for the capital of its sole trading subsidiary.
But a spokesman said: “However it has become clear to the directors of ScS the extent of the additional working capital funding required may result in only negligible value being attributed to the shares.
“As a result, the directors have requested a suspension in the trading of the company’s shares with immediate effect.”
Shares were valued at 6.5p when trading was suspended, giving the firm a notional value of £2 million – a fraction of what it was worth before the credit crunch kicked in.
ScS has been suffering from a slump in sales driven by a reduction in consumer spending.
The company said on June 15 it was in talks with external parties to address the working capital requirements of suppliers, and therefore its own working capital position.
It said these talks led to an approach from one of the parties to acquire the share capital of its sole trading subsidiary.
ScS said the approach would provide it with “substantial” working capital – enough to take care of its issues and make sure suppliers could continue their business with the company.
ScS Upholstery’s trading subsidiary operates from 95 stores and has 1,400 staff.
ScS said last month it was set to slump to an annual loss after worse-than-expected trading over the crucial bank holiday weekend.
The major trading period for furniture stores was “particularly disappointing” for ScS, as like-for-like sales plunged 20 per cent on the year before.
In January the firm revealed it had been forced to scrap the opening of five planned new stores, and had not paid a dividend after a difficult Christmas. The firm also postponed a refurbishment of UK stores.
Two weeks ago the firm revealed an insurer refused to cover five suppliers against the firm being unable to pay them. ScS said the unnamed insurer’s move hit the short term finances of the suppliers involved.
This month reports said accountants Ernst & Young were working on a restructuring at the Sunderland-based business with KPMG lined up as administrators if the deal fell through.
The company said it was cash positive with no net debt and continuing to work on options to raise additional working capital.
Mounting gloom over the UK property market has hit a host of retailers as a stuttering market leads to a steep drop in sales of goods such as sofas, washing machines and carpets.
Land of Leather said last week it was also looking to raise more capital.